The Australian government has a ‘target spend’ for defence as a share of gross domestic product. Should it also have one for health, Brian Owler asks.

The Australian public hospital system is facing crisis since the Commonwealth Government abandoned its promise to make funding sustainable and to contribute equally to meeting the growth in public hospital costs.

Instead responsibility has been shifted to the states and territories that lack adequate resources to manage on their own, and patients will face risk when there is no choice but to reduce public hospital services.

From July 2017, the Commonwealth will strictly limit its contribution to public hospital costs. Growth in Commonwealth funding will be restricted to indexation, using the Consumer Price Index (CPI) and population growth only.

This is a sharp contrast with current funding under the National Health Reform Agreement (2011), where all governments agreed to fund actual public hospital activity using a national efficient price, and with guaranteed minimum Commonwealth funding in the transition period. The Commonwealth Treasury advised the Senate Economics Committee the 2017 change will reduce projected Commonwealth funding to the states and territories by A$57 billion over the period 2017-18 to 2024-25.

As a result, hospitals won’t have the funding to meet the increasing demand for services.

In the meantime, Commonwealth funding for public hospitals in the 2015-16 Budget has been reduced by A$423 million for the three years to 2017-18, with a further reduction of A$31 million to 2018-19 in the December 2015 Budget update. More recently, the media reported that Federal hospital funding for Victoria is being cut by A$73 million mid-year, after an adjustment to their funding arrangement by the Commonwealth Treasury.

By any measure, we have reached a crisis point. Funding public hospitals is not discretionary; public hospitals provide healthcare services crucial to the population, and workforce and social participation.

The Government’s justification for these extreme savings measures has been that Australia’s health spending is unsustainable, but this is simply not substantiated by the evidence.

The Government’s own health expenditure figures (2013-14) show two years of modest, sustainable growth. We have seen 3.1 per cent growth in total heath expenditure in 2013-14 on the back of 1.1 per cent growth in 2012-13; a year with the lowest growth rate in health expenditure since the Government began reporting it in the mid-1980s.

There have now been two years where growth in health expenditure has been well below the long-term average annual growth of 5 per cent over the last decade.

According to the health expenditure report, health was 9.8 per cent of Australia’s GDP in 2013-14, which is sustainable when compared with the 10-year average of 9.12 per cent.

Total health expenditure is reducing as a percentage of the Budget. In the 2014-15 Commonwealth Budget, health was 16.13 per cent of the total, down from 18.09 per cent in 2006-07. In the 2015-16 Budget, it represented only 15.97 per cent. Clearly, total health spending is not out of control.

This is reflected in the performance of our public hospitals. The Australian Medical Association’s Public Hospitals Report Card 2016 shows that, against key measures, the performance of our public hospitals is also virtually stagnant, or in many cases declining. Waiting times are largely static, with only very minor improvement, while Emergency Department (ED) waiting times have worsened. The percentage of ED patients treated in four hours is well below target, and bed number ratios have deteriorated.

The change in public hospital capacity and performance is stark. Hospital beds as a ratio per 1000 population aged 65 years and over have been cut from 29.4 in 1993-94 to 17.2 in 2013-14, while the national median waiting time for elective surgery has blown out from 28 days in 1993-94 to 35 days in 2014-15.

Consequently, the public’s confidence in public hospitals is waning – 54 per cent of respondents to the Consumers Health Forum survey on private health insurance thought the public system unable to offer timely access for health care.

Without sufficient funding to increase capacity, public hospitals will never meet the targets set by governments, and patients will wait longer for treatment.

Australia’s mixed health system of public and private hospitals and healthcare providers generally serves us reasonably well. But the system is finely balanced and its equilibrium and performance depends on how the components perform and interact. Inadequate funding and declining capacity of public hospitals will inevitably disrupt and distort the current balance and lead increasingly towards a two-tier system for hospital care.

So what needs to be done?

Governments have a ‘target spend’ for defence as a share of GDP. Should there be an appropriate target for public expenditure on public hospitals and health care?

Even without an overall target spend, funding should be reset at a realistic level, and indexed at a rate that reflects actual costs of the goods and services hospitals use. There should be provision for demographic change – not only for population growth, but also for changes associated with ageing populations and health needs.

The Commonwealth should not abandon its critical role in working with the states and territories to ensure equity in access and quality of public hospital services across the Federation.

It also has a responsibility for the future health system. Public hospitals are the training ground for the future medical workforce, and the safety net for the people who can’t afford private health insurance. They are the place where innovation and new treatments are developed.

Commonwealth funding must ensure public hospitals can meet the community’s requirements. The people of Australia have a right to it.